ADMINISTRATIVE
COSTS
CLAIMED BY THE FLORIDA
DIVISION OF DISABILITY
DETERMINATIONS

September
2003

A-08-03-13006

AUDIT
REPORT

Mission

We improve SSA programs and operations and protect them against fraud, waste,
and abuse by conducting independent and objective audits, evaluations, and
investigations. We provide timely, useful, and reliable information and advice
to Administration officials, the Congress, and the public.

Authority

The Inspector General Act created independent audit and investigative units,
called the Office of Inspector General (OIG). The mission of the OIG, as spelled
out in the Act, is to:

Conduct and supervise
independent and objective audits and investigations relating to agency programs
and operations.
Promote economy, effectiveness, and efficiency within the agency.
Prevent and detect fraud, waste, and abuse in agency programs and operations.
Review and make recommendations regarding existing and proposed legislation
and regulations relating to agency programs and operations.
Keep the agency head and the Congress fully and currently informed of problems
in agency programs and operations.

To ensure objectivity, the IG Act empowers the IG with:

Independence to determine
what reviews to perform.
Access to all information necessary for the reviews.
Authority to publish findings and recommendations based on the reviews.

Vision

By conducting independent and objective audits, investigations, and evaluations,
we are agents of positive change striving for continuous improvement in the
Social Security Administration's programs, operations, and management and in
our own office.

The objectives of our audit
were to (1) evaluate the Florida Division of Disability Determinations’ (FL-DDD) and the Florida Department of Health’s
(FL-DH) internal controls over the accounting and reporting of administrative
costs and (2) determine whether costs claimed were allowable and properly allocated
and funds were properly drawn.

BACKGROUND

The Disability Insurance (DI) program was established in 1954 under Title
II of the Social Security Act (Act). The program provides a benefit to wage
earners and their families in the event the wage earner becomes disabled. The
Supplemental Security Income (SSI) program was created as a result of the Social
Security Amendments of 1972 with an effective date of January 1, 1974. SSI
(Title XVI of the Act) provides a nationally uniform program of income to financially
needy individuals who are aged, blind, and/or disabled.

The Social Security Administration (SSA) is primarily responsible for implementing
policies governing the development of disability claims under the DI and SSI
programs. Disability determinations under both DI and SSI are performed by
Disability Determination Services (DDS) in each State or other responsible
jurisdictions. Such determinations are required to be performed in accordance
with Federal law and underlying regulations. In carrying out its obligation,
each DDS is responsible for determining claimants' disabilities and ensuring
adequate evidence is available to support its determinations. To assist in
making proper disability determinations, each DDS is authorized by SSA to purchase
such consultative medical examinations as x-rays and laboratory tests to supplement
evidence obtained from the claimants' physicians or other treating sources.

SSA authorizes an annual
budget to reimburse the DDS for 100 percent of allowable expenditures. Once
SSA approves the annual budget, the DDS withdraws Federal funds through the
Department of the Treasury's (Treasury) Automated Standard Application for Payments
system. The DDS is required to draw funds according to Federal regulations and
in accordance with intergovernmental agreements entered into by Treasury and
the States under the authority of the Cash Management Improvement Act of 1990
(CMIA). At the end of each fiscal quarter, each DDS is required to submit to
SSA a State Agency Report of Obligations for SSA Disability Programs (Form SSA-4513)
to account for program disbursements and unliquidated obligations.

FL-DDD is a component of
the FL-DH. Indirect costs are allocated according to the FL-DH Cost Allocation
Plan, which is required to be approved by the Department of Health and Human
Services (HHS) on behalf of the Government. Before January 1, 2000, FL-DDD was
a component of the Florida Department of Labor (FL-DL). The Division of Disability
Determinations was transferred to FL-DH effective January 1, 2000, and FL-DL
ceased to exist on July 1, 2002.

SCOPE AND METHODOLOGY

We reviewed the administrative
costs FL-DDD reported on its Form SSA-4513 for Fiscal Years (FY) 1999 through
2001.
For the periods reviewed, we obtained
evidence to evaluate recorded financial transactions and determine whether
they are allowable under Office of Management and Budget (OMB) Circular A-87,
Cost Principles for State, Local and Indian Tribal Governments, and appropriate,
as defined by SSA’s Program Operations Manual System (POMS).
We also

• reviewed applicable
Federal regulations and pertinent parts of POMS, DI 39500, DDS Fiscal and
Administrative
Management, and other instructions
pertaining to administrative costs incurred by FL-DDD and draw down of SSA
funds covered by the CMIA;

• reviewed the reconciliation
of official State accounting records to the administrative costs reported
by FL-DDD on Form SSA-4513 for FYs 1999 through
2001;

• examined the administrative
expenditures (personnel, medical service, and all other non-personnel costs)
incurred and claimed by FL-DDD for FYs 1999
through 2001 on Form SSA-4513. We used statistical sampling to select documents
to test for support of the medical service and all other non-personnel costs
(see Appendix B);

• examined the indirect costs claimed by FL-DDD for FYs 1999 through 2001
and the corresponding FL-DH Cost Allocation Plans;

• compared the amount
of SSA funds drawn to support program operations to the allowable expenditures
reported
on Form SSA-4513;

• reviewed the State of Florida Auditor General’s
Single Audit reports for the period July 1, 1998 through June 30, 2001; and

We performed work at FL-DDD
offices in Tallahassee and Jacksonville, Florida, and FL-DH offices in Tallahassee,
Florida. We conducted our audit from June 2002 through May 2003 in accordance
with generally accepted government auditing standards.

RESULTS OF REVIEW

The FL-DH and FL-DDD had
adequate internal controls over accounting and reporting of administrative
costs and
draw downs. Our tests of the amounts FL-DH reported
on Forms SSA 4513 provided reasonable assurance FL-DH had correctly reported
the administrative costs ($207,863,679) FL-DDD incurred for disability determination
activities during our audit period (see Table 1 and Appendix C). Our tests
of FL-DH’s claimed costs also showed the sampled expenditures were allowable
and allocable and funds were properly drawn.

We concluded FL-DH and
FL-DDD complied with laws, regulations, policies and procedures governing
expenditures and
obligations incurred for SSA’s
disability program for FYs 1999 through 2001. Specifically, we concluded FL-DH
and FL-DDD had adequate internal controls over accounting and reporting of
administrative costs and draw downs of SSA funds for the period under review.
Administrative costs claimed were allowable and properly allocated, and funds
were properly drawn.

Our sampling methodology encompassed the four general areas of costs as reported
on Form SSA-4513: (1) Personnel, (2) Medical, (3) Indirect, and (4) All Other
Non-personnel Costs. We obtained computerized data from the Florida Division
of Disability Determinations (FL-DDD) for Fiscal Years (FY) 1999 through 2001
for use in statistical sampling. After selecting and reviewing randomly selected
samples, we did not identify errors we felt warranted audit projection.

Personnel Costs

We judgmentally sampled
seven employees and three contractors from one pay period in each of the
FYs 1999 through
2001. We tested FL-DDD’s payroll
records to ensure it correctly paid employees and adequately documented these
payments.

Medical Costs

We sampled 150 items (50 items from each FY) using a stratified random sample.
We stratified medical costs into Medical Evidence of Record and Consultative
Examinations and selected more consultative examination invoices because these
costs represented 74 percent of all medical costs.

Indirect Costs

We reviewed the indirect cost base and computations used to determine those
costs for reimbursement purposes. Our objective was to ensure the Social Security
Administration reimbursed FL-DDD in compliance with the State Cost Allocation
Plan. We reviewed the spreadsheets and traced the base amounts back to Form
SSA-4513 for the indirect cost computation components.

All Other Non-personnel Costs

We selected a stratified random sample of 162 items (54 expenditures from
each FY) from All Other Non-personnel Costs. We stratified All Other Non-personnel
Costs into seven cost categories: (1) Care and Subsistence, (2) Staff Travel,
(3) Communications, (4) Equipment and Capital Outlays, (5) Independent Contractors,
(6) Miscellaneous, and (7) Occupancy. We selected a stratified random sample
of 50 items from each FY based on the percentage of costs in each category
(excluding occupancy) to total costs. We also selected a judgmental sample
of occupancy expenditures from each FY for the Occupancy category. We did not
identify errors we felt warranted audit projection.

Thank you for the opportunity to comment on the validity of the facts and
reasonableness of the recommendations presented in your report of the audit
(# A 08-03-13006) on the Administrative Costs Claimed by the Florida Disability
Determination Services (DDS).

There were no recommendations
made from this audit because the auditors concluded that the Florida Department
of Health and the Florida DDS complied with laws,
regulations, policies and procedures governing expenditures and obligations
incurred for SSA’s disability program for Fiscal Years 1999 through 2001.

Please contact me if I can be of further assistance. Staff questions should
be referred to Karen Killam (404) 562-5727 or Josie Irwin at (404) 562-1407.

Paul D. Barnes

[SSA also provided a technical
comment which has been addressed in this report.]

For additional copies of
this report, please visit our web site at www.ssa.gov/oig or contact the Office
of the Inspector General’s Public Affairs Specialist at (410) 966-1375.
Refer to Common Identification Number A-08-03-13006.

Overview of the Office
of the Inspector General

Office of Audit

The Office of Audit (OA)
conducts comprehensive financial and performance audits of the Social Security
Administration’s (SSA) programs and makes
recommendations to ensure that program objectives are achieved effectively
and efficiently. Financial audits, required by the Chief Financial Officers'
Act of 1990, assess whether SSA’s financial statements fairly present
the Agency’s financial position, results of operations and cash flow.
Performance audits review the economy, efficiency and effectiveness of SSA’s
programs. OA also conducts short-term management and program evaluations focused
on issues of concern to SSA, Congress and the general public. Evaluations often
focus on identifying and recommending ways to prevent and minimize program
fraud and inefficiency, rather than detecting problems after they occur.

Office of Executive Operations

The Office of Executive
Operations (OEO) supports the Office of the Inspector General (OIG) by providing
information
resource management; systems security;
and the coordination of budget, procurement, telecommunications, facilities
and equipment, and human resources. In addition, this office is the focal point
for the OIG’s strategic planning function and the development and implementation
of performance measures required by the Government Performance and Results
Act. OEO is also responsible for performing internal reviews to ensure that
OIG offices nationwide hold themselves to the same rigorous standards that
we expect from the Agency, as well as conducting employee investigations within
OIG. Finally, OEO administers OIG’s public affairs, media, and interagency
activities and also communicates OIG’s planned and current activities
and their results to the Commissioner and Congress.

Office of Investigations

The Office of Investigations (OI) conducts and coordinates investigative activity
related to fraud, waste, abuse, and mismanagement of SSA programs and operations.
This includes wrongdoing by applicants, beneficiaries, contractors, physicians,
interpreters, representative payees, third parties, and by SSA employees in
the performance of their duties. OI also conducts joint investigations with
other Federal, State, and local law enforcement agencies.

Counsel to the Inspector General

The Counsel to the Inspector
General provides legal advice and counsel to the Inspector General on various
matters,
including: 1) statutes, regulations,
legislation, and policy directives governing the administration of SSA’s
programs; 2) investigative procedures and techniques; and 3) legal implications
and conclusions to be drawn from audit and investigative material produced
by the OIG. The Counsel’s office also administers the civil monetary
penalty program